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Ah, Brighton. Bangles and bohemians, fish and chips, salt and sex. Plus – for a few days only – the Liberal Democrats.

The party high command will already have prepared their media grid, agreed main themes and co-ordinated the key speeches. Expect timed media “hits” on tax, the green agenda, youth jobs and education.

But it is clear that the real story of the con­ference is the party leadership. For four days and nights the question in the sea air will be: Clegg or no Clegg?

The mutterings have been growing louder for months, certainly since another bruising round of local election results in the spring. A summer poll by the grass-roots Lib Dem Voice website found that only half the party’s members want Nick Clegg to lead them into the 2015 election. Lord Oakeshott, the Lib Dem peer who has turned political disloyalty into an art form, seized the moment to suggest a “change of management” for an enterprise that has lost “half its market share”.

Vince Cable allowed it to be known that, in the time left over from sending texts to Ed Miliband, he still hankers for the top job. And finally Paddy Ashdown felt the need to fire a warning salvo at the rebels. His big guns are usually reserved for real threats.

So it is no good avoiding it. The question of Clegg’s leadership has to be addressed. Indeed, given the party’s current position, it would be irresponsible not to do so. It is some comfort that David Cameron is facing similar squalls in his own party: at least now the necessary pain of coalition is being shared.

Cards on the table: I think the party must stick with Clegg, and that Clegg must stick with both liberalism and coalition. Of course, it would be absurd for me to claim a dispassionate objectivity, having served alongside Clegg as his director of strategy for two years.

My case for him as leader, however, does not rest on personal admiration. It is based on a combination of liberal ambition and political calculation.

The question about the leadership is, at heart, a question about the party’s direction. Do the Lib Dems complete the journey of liberalisation that Clegg embarked on, or retreat to their earlier, soft centre-left position? Is Cleggism a temporary detour or a real departure? “Clegg or no Clegg?” is a proxy question for the deeper one: “Liberal or not liberal?” If the party is to be liberal, it has to be Clegg. If not, it should be almost anyone but.

Clegg has always been open about the basis of his politics. He is a liberal, not a social democrat. His party includes people who are basically social democrats, but who care additionally about civil liberties and war. They hated Tony Blair, post the 9/11 attacks, for his recklessness in foreign policy and carelessness with civil liberties, but – if they are honest – find it hard to disagree with Ed Miliband. Clegg is not one of those people. He is as ferocious as his colleagues in support of international law and (a bit less consistently) civil liberties. But, for him, the statism, paternalism, insularity and narrow egalitarianism of Labour is as off-putting as the Little Englander com­placency of the Conservatives.

Clegg is a radical liberal, fiercely committed to opening up British society, attacking the hoards of power that disfigure our politics and economy, and to keeping the state out of private lives. Opportunity, not equality. Liberty, not fraternity. Citizens, not subjects.

That’s all very well on paper. But before we choose the liberal path, we need to identify both an intellectual need and a political space. Is there room, philosophically and psephologically, for a proper liberal party in British politics?

***

These are not trivial questions. Given the long-run success of political liberalism, it may be that it doesn’t need explicit electoral expression any more. The historic liberal battles – equal rights, universal suffrage, freedom of expression, civil liberties, free trade – have largely been won. If all the mainstream political parties are essentially liberal, what need for a Liberal party?

This argument – that political liberalism has been a victim of its own broader success – is weaker today than a few years ago. First, that is because liberal achievements come under most pressure at times of economic crisis. Societies can turn inwards, look backwards and search for scapegoats. Recession threatens to become regression. It becomes harder to sustain the liberal promise of progress through openness – but all the more important to stick to it.

At times like these, liberals have more defensive work to do against the creeping paternalism and insularity of the other two traditions. The liberalism of the other parties is disposable. It doesn’t take much before they start chipping away at civil liberties, micromanaging personal behaviour, or striking populist stances on immigration or Europe.

But there is a second, more positive, rationale for a 21st-century liberal party. It is liberalism that provides the intellectual resources to diagnose and cure our national malaise. The financial crash of 2008 and the MPs’ expenses scandal of the following year exposed the rottenness of the British institutional establishment: overcentralised, under-regulated, elite, complacent and closed.

We urgently need to modernise the UK’s outdated political and economic institutions. We need radical reform of the banking system, parliament, the structure of our companies, the tax system, media ownership, party funding. The principal faults in our society require a liberal remedy – a bold redistribution of power – to which, in the end, only liberals are committed.

Three years ago, Nick Clegg published a Demos pamphlet titled The Liberal Moment. He was making an essentially party political point: that Labour was intellectually bankrupt, the Conservative claims to reformism were a mirage, and the Liberal Democrats were poised to inherit the progressive mantle. But there is a deeper truth to his claim. This is indeed a moment for more liberalism in our politics, our economy and our society.

The Conservatives do not share the liberal diagnosis. They think the public finances are in dire straits (correct) and that we face, in addition, a “social recession” (incorrect). Camer­on’s language of “broken Britain” and “slow-motion moral collapse” locates the nation’s problems firmly at the door of the nation’s citizens. This is upside-down. It is not Britain that is broken. It is the British establishment.

And, as far as it is possible to tell, Labour does not share the liberal diagnosis either. It remains wedded to an egalitarian, statist, vaguely communitarian philosophy. Miliband sees in the financial crisis an opportunity to reassert the value of the state as opposed to the free market. But the state apparatus is as dysfunctional and distrusted as that of the market.

There is, therefore, some clear philosophical space for a liberal party. But political philosophy doesn’t win many votes. Is there political space, too?

On the face of it, the answer is yes. Most people are sceptical of the claims of both left and right. In fact, on a left-right scale, most people locate themselves in the same place as the Liberal Democrats. Few people want a party reliant on the financial support of either the unions or the rich. The population is increasingly socially liberal and anti-ideological. There remains a Blair-shaped hole in British politics.

Right now, it is hard to feel much benefit from occupying the centre ground. The Liberal Democrats are still suffering from the aftershocks of coalition, austerity and tuition fees. But it is also because the identity of the party is unclear – because it remains unresolved. There is no easy escape route, but a route must be chosen.

And, even on the narrowest grounds of straightforward party interest, sticking to a truly liberal path is the best option. Those who yearn to pull the party back to the left should think hard about what the campaign message would be in 2015. Any attempt to position the Liberal Democrats as a party of the centre left after five years of austerity government in partnership with the Conservatives will be laughed out of court by the voters – and rightly so. Anybody who wants a centre-left party will find a perfectly acceptable one in Labour. The Liberal Democrats need centrist voters, “soft Tories”, ex-Blairites, greens – and anyone who thinks the Tories are for the rich and Labour can’t be trusted with the economy. There is a new political market for the Liberal Democrats. The party just needs to seek it out, rather than looking wistfully at the old customers who have turned away. The left-wing votes “borrowed” from Labour in 2010 will not be available in 2015. New ones must be found.

This proves that there is an intellectual and electoral case for a hard-driving, radical liberal party of the political centre. So – that means Clegg. Nobody else in sight could lead such a party.

And it means an end to the navel-gazing. Once the party caravan packs up on 26 Sept­ember and heads inland after conference, the muttering has to stop. If the party is not to sack Nick Clegg then it must back him.

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Liberal Democrat internal politics used to be a parlour game, amateurish, amusing and inconsequential. It is not a game now. The stakes are higher. The economic credibility of the coalition government is a precious national asset. It will be threatened if the leadership question continues to be posed, especially by senior colleagues.

Careless talk costs jobs. Party members have shown extraordinary resilience, unity and loyalty over the past two years. This is no time to lose that record.

But Nick Clegg himself also has work to do. In particular, he needs to distinguish the brand of liberal politics that he is selling and declare his liberal hand more openly. The party has to be led in a more robustly liberal direction. This will be uncomfortable for many, though perhaps not as many as he fears. Rather than attempting to manage the party where it stands, Clegg has to lead his party to the place it needs to be.

As the insightful Matthew d’Ancona put it very recently, Clegg “wants nothing less than to create a third party of government; not an electoral dumping ground for the Undecideds, the Outraged and People Who Still Hate Blair”.

But the distinctiveness of that third party of government has to be sharpened. In terms of policy, the Liberal Democrats now have room to push harder for economic reforms; stand firmer for civil liberties; fight to make the government, as promised, “the greenest ever”; and to adopt a more robustly liberal stance on social issues. The coalition is stable and has shown great discipline in the central task of deficit reduction. Clegg and his colleagues have more than earned the right to speak their minds.

On the economy, a stronger public case should be made for public investment in infrastructure – preferably via a national infrastructure bank and with a real national balance sheet; for a big push on employee ownership and mutuals; and for a clearer commitment to green growth. The party’s tax policy remains a potent weapon. Labour and the Tories are obsessed with taxes on the rich – from opposite directions – while the Liberal Democrats are obsessed with taxes faced by ordinary workers. There will be positive signs on all these fronts in Brighton, but the volume dial is still too low.

Civil liberties have been mostly a successful area for the coalition government, yet there are dangers looming here. (And not only because the sight of Chris Grayling as Secretary of State for Justice sends shivers down every liberal spine.) The Communications Data Bill is a misconceived measure. It is a retread of a Lab­our proposal to force internet service providers to store details of the emails and website activity of individuals. A special parliamentary committee has been established to scrutinise the bill. Clegg has said that it will not simply be “rammed” into law. The truth is that the bill should never become law at all. David Davis, the former Conservative shadow home secretary, has described the measures as “unnecessary and a huge invasion” of privacy. Davis is an egomaniacal pain in the backside, but he is right.

Most people in Britain will be instinctively opposed to state employees having greater powers to see who they email or what websites they visit. And they will certainly expect the Liberal Democrats, as liberals, to oppose such a measure. On issues such as this, there is often a sensible compromise, such as the agreement the coalition government found on control orders. But not on this one: the bill must be killed.

It is also time for Clegg to stand up against the Tories’ creeping paternalism. Fiddly proposals for minimum alcohol pricing; intrusive ones to curb use of pornography on the internet; a raft of new rules on cigarette sales. Cameron has too often followed the lead of the “nanny state” Labour ministers he used to mock.

Far from indulging in more micromanagement, the state should be easing up on people. There is a strong case for relaxing many of the drug laws – a case that police officers and civil servants make all the time, behind closed doors. At the very least, we should decriminalise possession of cannabis and Ecstasy. And on gay marriage, the Liberal Democrats now have an open goal. Cameron is struggling to contain the harrumphing shire Tories. Labour is silent. It is a liberal cause.

Clegg’s office got into trouble earlier in the month for calling opponents of gay marriage “bigots” and then recalling both the press release and the charge. Here’s the thing: they are bigots. In the end, the only reason to deny a gay couple the right to marry is a belief that their relationship is in some way inferior to a heterosexual one. That’s bigotry. I have no doubt that the opponents of same-sex marriages will be seen, in fairly short historical order, in the same light as those who opposed mixed-race marriages.

Naturally, using words such as “bigot” will upset some people. People who were never going to vote Liberal Democrat anyway. And the right-wing press, having apparently declared open season again on Clegg, will always have a field day. But it would show others, including the majority of under-forties in favour of gay marriage, that the Liberal Democrats were prepared to stand up to the forces of conservatism on social issues. The mistake was not in the first press release, but the second.

Moves of this kind might find favour with the party’s grass roots, but Clegg will need to continue to challenge the party, too, especially on public services. Tony Blair warned that the “Old Labour” instincts of the Liberal Democrats on health and education would hamper Cameron’s reform plans. He has been proved half right. On public services the party sides too often with the vested interests of providers over the needs of users and the demands of social justice. This is particularly true in education policy – where the appointment of David Laws is a hugely positive sign. If the party really can’t find favour with free schools, for instance, its claims to liberalism will look threadbare.

Nor are the internal challenges restricted to policy. If they are to be a modern party, the Liberal Democrats have to look and sound like modern Britain, rather than the very establishment they seek to challenge. So where are the female cabinet ministers? Where are the black MPs? Why so many public school boys? Clegg has conceded that his party is “too male and too pale”. It is now time for some bolder steps towards doing something about it. If it is to be a party of openness, it should hold open primaries for the selection of candidates – at the very least for the London mayoral candidate. And does Clegg need to be the “Lord President of the [Privy] Council”?

Clegg, then, must align his party with his own philosophy. But at the same time he has to keep the coalition show on the road. A collapsing government will not result in a resurgent Liberal Democrat electoral prospect: quite the opposite. Lib Dem hopes rely in good part on the successes of the government as a whole.

The same is true for Cameron. His claims of strong leadership – vital to his electoral chances – will look weak if “his” government has become rudderless. So while both leaders may need to show their own separate identities, they should not shy away from areas of shared endeavour. The danger is that, rather than challenging their parties, the two leaders simply challenge each other. Under pressure from activists, Clegg and Cameron could pull left and right – resulting in a two-year tug of war with no winner.

When he heads back to London after conference with the full-throated endorsement of his party, Clegg’s “to do” list will be short:

Complete liberalisation of party.

Showcase modern liberalism in policy and action.

Ensure a stable, successful and reforming coalition with the Conservatives.

Win at least a million new voters in the centre.

I said it was short, not easy, but 30 years ago Jo Grimond, as a former leader of the Liberals, said that there is “no point keeping a liberal party alive unless it promotes liberalism”. His words ring just as true today. A Liberal party promoting real liberalism? It has to be worth a try.

Richard Reeves served as Nick Clegg’s director of strategy from July 2010 to this summer. He is an associate director of CentreForum and the author of the forthcoming Demos paper “Inside Liberal”. More details: richard-reeves.com